37430 Federal Register / Vol. 63, No. 132 / Friday, July 10, 1998 / Notices

38 15 U.S.C. 78s(b)(2).

39 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 38342

(February 26, 1997), 62 FR 10098.

4On May 2, 1997, the CBOE filed an amendment

to the proposed rule change. See Letter from

Michael L. Meyer, Esq., Schiff Hardin & Waite, to

Howard L. Kramer, Senior Associate Director,

Office of Market Supervision (‘‘OMS’’), Division of

Market Regulation (‘‘Division’’), Commission, dated

May 2, 1997 (‘‘Amendment No. 1’’). Amendment

No. 1 made no changes to the proposal, but merely

clarified the Exchange’s original filing. Amendment

No. 1 is no longer relevant, and has been replaced

and superseded by Amendment Nos. 2 and 3.

5See Letter from Michael L. Meyer, Esq., Schiff

Hardin & Waite to Howard L. Kramer, Senior

Associate Director, OMS, Division, Commission,

dated January 9, 1998 (‘‘Amendment No. 2’’). In

Amendment No. 2 the Exchange proposes to revise

the listing standards for Fund Shares set forth in

Interpretation and Policy .06 under Rule 5.3 to

require, in addition to other criteria, either: (1) that

the underlying Fund Shares or units must satisfy

the same criteria and guidelines under CBOE rules

that apply to determine the eligibility for listing

options on underlying equity securities; or (2) that

the issuer is obligated to issue Fund Shares in a

specified aggregate number in return for a cash

deposit in an amount equal to the value of the

securities that comprise the index or portfolio

represented by the Fund Shares. In addition,

Amendment No. 2 provides that the same tiered

shall have the American-style exercise

feature; (2) allows for the trading of

FLEX Equity options on Fund Shares;

(3) permits the Exchange to list options

on Funds Shares covering 100 or 1000

Fund Shares or both; (4) sets strike

prices for both 100 and 1000 share

contracts to bracket the Fund Shares

price at one point intervals up to a share

price of $200; and (5) makes various

non-substantive references to

‘‘Exchange-Traded Fund Shares’’

throughout Amex’s Rules, where

appropriate. The Commission finds that

these changes are not controversial

because they do not alter the

fundamental nature of the proposal.

Amendment No. 4 provides the

Exchange with the flexibility to list

Fund Shares pursuant to the uniform

option listing standards in Rule 915 and

Commentary .01, in lieu of obtaining a

commitment from the unit investment

trust or management investment

company to issue Fund Shares even

though some or all of the securities

needed to be deposited have not been

received. The Commission believes that

this strengthens the proposal because

the uniform option listing standards

help to ensure that the Fund Shares

underlying the options are actively

traded, with substantial public float and

number of holders. That portion of

Amendment No. 4 that addresses

comprehensive surveillance sharing

agreements has been replaced and

superseded by Amendment No. 5.

The Commission also believes that

Amendment No. 5, concerning

surveillance requirements, strengthens

the Amex’s proposal. Amendment No.

5, provides a clear, objective standard

for determining the comprehensive

surveillance requirements for trading

options on Fund Shares where the

underlying index or portfolio contains

non-U.S. stocks.

The Commission finds that

Amendment No. 6 also strengthens the

Amex’s proposal. Amendment No. 6

provides that the Amex will apply

narrow-based margin to options on

Fund Shares which are based on a

narrow-based index or portfolio of

securities. This requirement should

ensure that purchasers of options on

Fund Shares based on a narrow-based

index or portfolio post sufficient margin

to address any concerns associated with

the potentially increased volatility

inherent in a narrow-based index.

Finally, the Commission notes that no

comments were received on the original

Amex proposal, which was subject to

full 21-day comment period.

Accordingly, the Commission believes

that there is good cause, consistent with

Section 6(b)(5) of the Act, to approve

Amendment Nos. 3, 4, 5, and 6 to the

proposed rule change on an accelerated

basis.

Interested persons are invited to

submit written data, views and

arguments concerning Amendment Nos.

3, 4, 5 and 6 to the proposed rule

change, including whether the

Amendments are consistent with the

Act. Persons making written

submissions should file six copies

thereof with the Secretary, Securities

and Exchange Commission, 450 Fifth

Street, N.W., Washington, D.C. 20549.

Copies of the submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Section, 450 Fifth Street, N.W.,

Washington, D.C. Copies of such filing

will also be available for inspection and

copying at the principal office of the

Amex. All submissions should refer to

File No. SR-Amex–96–44 and should be

submitted by July 31, 1998.

For the foregoing reasons, the

Commission finds that the Amex’s

proposal to list and trade options and

FLEX Equity Options on Fund Shares is

consistent with the requirements of the

Act and the rules and regulations

thereunder.

It is therefore ordered, pursuant to Section

19(b)(2) of the Act,38 that the proposed rule

change (File No. SR-Amex–96–44), as

amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.39

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18414 Filed 7–9–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40166; File No. SR–CBOE–

97–03]

Self-Regulatory Organizations; Order

Granting Approval of a Proposed Rule

Change and Notice of Filing and Order

Granting Accelerated Approval of

Amendment Nos. 2 and 3 to the

Proposed Rule Change by the Chicago

Board Options Exchange, Inc. Relating

to Options on Interests in Listed,

Open-End, Indexed Investment

Companies

July 2, 1998.

I. Introduction

On January 22, 1997, the Chicago

Board Options Exchange, Inc. (‘‘CBOE’’

or ‘‘Exchange’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) a proposed rule change

to adopt rules to permit the trading of

options on securities representing

interest in open-end, exchange-listed

investment companies that hold a

portfolio of securities comprising or

based on a broad-based stock index

(‘‘Exchange-Traded Fund Shares’’ or

‘‘Fund Shares’’). Notice of the proposal

appeared in the Federal Register on

March 5, 1997.3 No comment letters

were received on the proposed rule

change.4 On January 12, 1998, the

Exchange filed Amendment No. 2 to the

proposal.5 On May 18, 1998, the CBOE
Federal Register / Vol. 63, No. 132 / Friday, July 10, 1998 / Notices 37431

position and exercise limits that apply to options

on individual equity securities will apply to options

on Fund Shares. Finally, Amendment No. 2

removed certain continued listing standards that

were in the original filing.

6See Letter form Joseph Levin, Vice President,

Research, CBOE, to Howard L. Kramer, Senior

Associate Director, OMS, Division, Commission,

dated May 14, 1998 (‘‘Amendment No. 3’’). In

Amendment No. 3 the Exchange proposes a new

surveillance sharing standard for options on Fund

Shares that include non-U.S. stocks in the index or

portfolio upon which Fund Shares are based. In

addition, Amendment No. 3 includes continued

listing standards for options on Fund Shares, which

are discussed herein.

7See Letter from Michael L. Meyer, Esq., Schiff

Hardin & Waite, to James T. McHale, Special

Counsel, OMS, Division, Commission, dated June

23, 1998 (‘‘Amendment No. 4’’). Amendment No. 4

merely corrects an erroneous cross-reference in

Interpretation and Policy .08 to Rule 5.4.

8Telephone conversation between Michael L.

Meyer, Esq., Schiff Hardin & Waite, and James T.

McHale, Special Counsel, OMS, Division,

Commission, on June 30, 1998.

9Specifically, Interpretation and Policy .01 to

Rule 5.3 requires the underlying security to have a

public float of 7,000,000 shares, 2000 holders,

trading volume of 2,400,000 shares in the preceding

12 months, a share price of $7.50 for the majority

of the business days during the three calendar

months preceding the date of the selection, and that

the issuer of the underlying security is in

compliance with the Act.

10Provided the person obligated to deposit the

securities has undertaken to deliver the securities

as soon as possible and such undertaking has been

secured by the delivery and maintenance of

collateral consisting of cash or cash equivalents

satisfactory to the Fund which underlies the option,

as described in the Fund prospectus. See

Amendment No. 3, supra note 6.

11See Amendment No. 3, supra note 6.

12Specifically, paragraphs (a), (b), (c) and (d) of

Interpretation and Policy .01 to Rule 5.4 provide

that an underlying security will not meet the

Exchange’s requirements for continued listing

when, among other things: (1) there are fewer than

6,300,000 publicly-held shares; (2) there are fewer

than 1600 holders; (3) trading volume was less than

1,800,000 shares in the preceding twelve months;

and (4) the share price of the underlying security

closed below $5 on a majority of the business days

during the preceding 6 months.

13See Amendment No. 2, supra note 5. The

Commission notes that even if options on Fund

Shares were not listed under the uniform equity

option listing standards, initial listing standards for

the underlying Fund Shares typically require a

minimum number of Fund Shares to be outstanding

before trading in a series of Fund Shares may

commence. In addition, the CBOE has represented

that although there is no comparable public float

maintenance standard for the underlying Fund

Shares, as a practical matter there can never be

trading in a series of Fund Shares in which there

is less than one Creation Unit outstanding, since

Fund Shares only may be created and redeemed in

Creation Unit size, and if the last outstanding

Creation Unit should ever be redeemed, the series

(and the options on that series) will cease to trade.

14See Amendment No. 4, supra note 7.

filed Amendment No. 3 to the proposed

rule change.6 Finally, on June 24, 1998,

the Exchange filed a technical

amendment to the filing.7 This order

approves the Exchange’s proposal, and

Amendment Nos. 2 and 3 on an

accelerated basis.

II. Description of the Proposal

The purpose of the proposed rule

change is to provide for the trading of

options on Fund Shares. As noted

above, Fund Shares are exchange-listed

securities representing interests in openend unit investment trusts or open-end

management investment companies

(‘‘Funds’’) that hold securities based on

an index or a portfolio of securities.

Fund Shares are issued in exchange for

an ‘‘in kind’’ deposit of a specified

portfolio of securities, together with a

cash payment, in minimum size

aggregations or multiples thereof

(‘‘Creation Units’’). The size of the

applicable Creation Unit size

aggregation is set forth in the Fund’s

prospectus, and varies from one series

of Fund Shares to another, but generally

is of a substantial size (e.g., value in

excess of $450,000 per creation unit). A

fund, generally, will issue and sell Fund

Shares in Creation Unit size through a

principal underwriter on a continuous

basis at the net asset value per share

next determined after an order to

purchase Fund Shares and the

appropriate securities are received.

Following issuance, Fund Shares are

traded on an exchange like other equity

securities, and equity trading rules

apply. Likewise, redemption of Fund

Shares is made in Creation Unit size and

‘‘in kind,’’ with a portfolio of securities

and cash exchanged for Fund Shares

that have been tendered for redemption.

The CBOE proposes to trade options

on Fund Shares pursuant to the same

rules and procedures that apply

generally to trading in options on equity

securities, except that some special

listing criteria are proposed to apply to

this category of options. Options on

Fund Shares will be physically-settled

and will have either the European-style

or American-style exercise feature, as

specified.8

The listing and maintenance

standards proposed for options on Fund

Shares are set forth in proposed

Interpretation and Policy .06 under

CBOE Rule 5.3 and in Interpretation .10

under CBOE Rule 5.4, respectively.

Pursuant to the proposed initial listing

standards, CBOE only will list options

on Fund Shares that are principally

traded on a national securities exchange

or through the facilities of a national

securities association and reported as

national market securities. In addition,

the initial listing standards require that

either: (1) the Fund Shares meet the

uniform options listing standards in

CBOE Rule 5.3 and Interpretation and

Policy .01 thereunder, which include

minimum public float, trading volume,

and share price of the underlying

security in order to list the option;9 or

(2) the Exchange-Traded Fund Shares

must be available for creation or

redemption each business day in cash or

in kind from the Fund at a price related

to the net asset value, and the Exchange

will require that the Fund is obligated

to issue Fund Shares in a specified

aggregate number even though some or

all of the securities needed to be

deposited have not been received by the

Fund.10

In addition, the initial listing

standards require that: (1) any Fund

Share with non-US stocks in the

underlying index or portfolio that are

not subject to comprehensive

surveillance agreements do not in the

aggregate represent more than 50% of

the weight of the index or portfolio; (2)

stocks for which the primary market is

in any one country that is not subject to

a comprehensive surveillance agreement

do not represent 20% of more of the

weight of the index; and (3) stocks for

which the primary market is in any two

countries that are not subject to

comprehensive surveillance agreements

do not represent 33% of more of the

weight of the index.11

The Exchange’s proposed

maintenance standards provide that if a

particular series of Exchange-Traded

Fund Shares should cease to trade on an

exchange or as national market

securities in the over-the-counter

market, there will be no opening

transactions in the options on the Fund

Shares, and all such options will trade

on a liquidation-only basis. In addition,

the CBOE will consider the suspension

of opening transactions in any series of

options of the class covering Fund

Shares if: (1) the options fail to meet the

uniform equity option maintenance

standards in paragraphs (a), (b), (c), and

(d) of Interpretation and Policy .01 to

Rule 5.4,12 when the options were listed

pursuant to the equity option listing

standards of Rule 5.3 and Interpretation

and Policy .01 thereunder; 13 (2)

following the initial twelve-month

period beginning upon the

commencement of trading of the Fund

Shares on a national securities exchange

or as national market securities through

the facilities of a national securities

association there are fewer than 50

record and/or beneficial holders of Fund

Shares for 30 or more consecutive

trading days, when options on Fund

Shares were listed pursuant to clause

(D)(y) under Interpretation and Policy

.06 of Rule 5.3; 14 or (3) the value of the

index or portfolio of securities on which

the Fund Shares are based is no longer

calculated or available.

Reflecting the indexed nature of the

underlying portfolios of the Fund
37432 Federal Register / Vol. 63, No. 132 / Friday, July 10, 1998 / Notices

15The Commission notes that the CBOE’s

proposal is limited to trading options on Fund

Shares comprising or based on a broad-based index

or portfolio.

16See memorandum from Joseph Corrigan,

Executive Director, OPRA, to Eileen Smith, CBOE,

dated January 21, 1997.

17 15 U.S.C. 78f(b)(5).

18Pursuant to Section 6(b)(5) of the Act, the

Commission must predicate approval of any new

securities product upon a finding that the

introduction of such new product is in the public

interest. Such a finding would be difficult for a

derivative instrument that served no hedging or

economic function, because any benefits that might

be derived by market participants likely would be

outweighed by the potential for manipulation,

diminished public confidence in the integrity of the

markets, and other valid regulatory concerns.

19 15 U.S.C. 78c(f).

20The Commission notes, and CBOE has verified,

that holders of options on Fund Shares who

exercise and receive the underlying Fund Shares

must receive, like any purchaser of Fund Shares, a

product description or prospectus, as appropriate.

Telephone Conservation between Michael L. Meyer,

Esq., Schiff Hardin & Waite, and James T. McHale,

Special Counsel, OMS, Division, Commission, on

June 30, 1998.

21Provided the person obligated to deposit the

securities has undertaken to deliver the securities

as soon as possible and such undertaking has been

secured by the delivery and maintenance of

collateral consisting of cash or cash equivalents

satisfactory to the Fund which underlies the option,

as described in the Fund prospectus.

22See supra note 12.

23See supra note 21.

Shares on which options are proposed

to be traded, the Exchange proposes to

amend Interpretation and Policy .01

under Exchange Rule 5.5 to provide that

the minimum strike price intervals for

these options will be $2.50 where the

strike price is $200 or less, and $5.00

where the strike price is over $200.

These are comparable to the strike price

intervals provided in Interpretation and

Policy .01 under Exchange Rule 24.9, as

applicable to broad-based index options

having strike prices at about the level

expected for options on Fund Shares.

Margin requirements are proposed for

options on Fund Shares at the same

levels that apply to options generally

under Exchange Rule 12.3, except that,

reflecting the broad-based nature of the

index or portfolio underlying Fund

Shares, minimum margin must be

deposited and maintained equal to

100% of the current market value of the

option plus 15% (instead of 20%) of the

market value of equivalent units of the

underlying security value. In this

respect, the margin requirements

proposed for options on Fund Shares

are comparable to margin requirements

that currently apply to broad-based

index options under Exchange Rule

24.11(b)(i).15

CBOE believes it has the necessary

systems capacity to support the

additional series of options that would

result from the introduction of options

on Fund Shares, and it has been advised

that the Option Price Reporting

Authority (‘‘OPRA’’) also has the

capacity to support these additional

series.16

III. Commission Findings and

Conclusions

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, the

requirements of Section 6(b)(15).17

Specifically, the Commission believes

that providing for the listing and trading

of standardized options on ExchangeTraded Fund Shares should give

investors a better means to hedge their

positions in the underlying Fund

Shares. Further, the Commission

believes that pricing of the underlying

Fund Shares may become more efficient

and market makers in these shares, by

virtue of enhanced hedging

opportunities, may be able to provide

deeper and more liquid markets. In sum,

the Commission believes that options on

Fund Shares likely will engender the

same benefits to investors and the

market place that exist with respect to

options on common stock,18 thereby

serving to promote the public interest,

remove impediments to a free and open

securities market, and promote

efficiency, competition, and capital

formation.19

As a general matter, the Commission

believes that a regulatory system

designed to protect public customers

must be in place before the trading of

sophisticated financial instruments,

such as options on Fund Shares, can

commence trading on a national

securities exchange. The Commission

notes that the trading of standardized

exchange-traded options occurs in an

environment that is designed to ensure,

among other things, that: (1) the special

risks of options are disclosed to public

costumers; (2) only investors capable of

evaluating and bearing the risks of

options trading are engaged in such

trading; and (3) special compliance

procedures are applicable to options

accounts. With regard to position and

exercise limits, the Commission finds

that it is appropriate to adopt the tiered

approach used in setting position and

exercise limits for standardized stock

options. This approach should serve to

minimize potential manipulation and

market impact concerns. Accordingly,

because options on Fund Shares will be

subject to the same regulatory regime as

the other standardized options currently

traded on the CBOE, the Commission

believes that adequate safeguards are in

place to ensure the protection of

investors in options on Fund Shares.

The Commission also believes that it

is appropriate to permit the CBOE to list

and trade options on Exchange-Traded

Fund Shares given that these options

must meet specific requirements related

to the protection of investors.20 First,

the Exchange’s listing and delisting

criteria for options on Fund Shares are

adequate. With regard to initial listing,

the proposal requires that either: (1) The

underlying Fund Shares meet the

CBOE’s uniform options listing

standards; or (2) the Exchange-Traded

Fund Shares must be available for

creation or redemption each business

day in cash or in kind from the Fund at

a price related to the net asset value,

and the Exchange will require that the

Fund is obligated to issue Fund Shares

in a specified aggregate number even

though some or all of the securities

needed to be deposited have not been

received by the Fund.21 This listing

requirement should ensure that there

exists sufficient supply of the

underlying Fund Shares so that a short

call writer, for example, will have the

ability to secure delivery of the Fund

Shares upon exercise of the option.

In reviewing the CBOE’s proposal, as

originally submitted, the Commission

had been concerned with the ability to

produce Fund Shares upon exercise of

the option. The Commission believes

the CBOE has adequately addressed

these concerns through the adoption of

the listing standards set forth above. In

particular, options listed pursuant to the

uniform options listing standards will

have to meet the options maintenance

listing standards which require, among

other things, that a minimum number of

Fund Shares be outstanding to continue

trading the options.22 The alternative

listing criteria, noted above, should also

help to ensure that the underlying Fund

Shares will be available upon exercise

by requiring the Fund to allow market

participants to create Fund Shares even

though some or all of the necessary

securities needed to be deposited are

not available.23 Although there is no

absolute assurance that market

participants will go ahead and create

Fund Shares in the event a short call

writer needs to purchase Fund Shares to

meet an exercise notice, it is likely that

arbitrage opportunities will create an

incentive to do so. Further, in the event

there are not enough Fund Shares to

meet exercise requirements, as with

other physically-settled equity options,

the Options Clearing Corporation
Federal Register / Vol. 63, No. 132 / Friday, July 10, 1998 / Notices 37433

24The Exchange uses the term ‘‘comprehensive

surveillance agreement’’ to mean an agreement

which requires that the parties provide each other,

upon request, information about market trading,

clearing activity and the identity of the ultimate

purchasers and sellers of securities. Telephone

conversation between Michael L. Meyer, Esq.,

Schiff Hardin & Waite, and James T. McHale,

Special Counsel, OMS, Division, Commission, on

June 30, 1998.

25 ISG was formed on July 14, 1983 to, among

other things, coordinate more effectively

surveillance and investigative information sharing

arrangements in the stock and options markets. See

Intermarket Surveillance Group Agreement, July 14,

1983. The members of ISG include all of the

registered National Securities Exchanges and the

National Association of Securities Dealers, Inc.

(‘‘NASD’’). In addition, the major stock index

futures exchanges (e.g., the Chicago Mercantile

Exchange and the Chicago Board of Trade) are

affiliate members of ISG.

26Because Amendment No. 4 is technical in

nature, it is not subject to a notice and comment

requirement.

27 15 U.S.C. 78s(b)(2).

28 17 CFR 200.30–3(a)(12).

(‘‘OCC’’) has rules that would apply to

such situations.

Second, the Commission believes that

the surveillance standard developed by

the CBOE for options on Fund Shares is

adequate to address the concerns

associated with the listing and trading

of such securities. Specifically, the

CBOE has proposed that: (1) Any Fund

Share with non-US stocks in the

underlying index or portfolio that are

not subject to comprehensive

surveillance agreements do not in the

aggregate represent more than 50% of

the weight of the index or portfolio; (2)

stocks for which the primary market is

in any one country that is not subject to

a comprehensive surveillance agreement

do not represent 20% or more of the

weight of the index; and (3) stocks for

which the primary market is in any two

countries that are not subject to

comprehensive surveillance agreements

do not represent 33% or more of the

weight of the index.24

As a general matter, the Commission

believes that comprehensive

surveillance agreements provide an

important deterrent to manipulation

because they facilitate the availability of

information needed to fully investigate

a potential manipulation if it were to

occur. These agreements are especially

important in the context of derivative

products based on foreign securities

because they facilitate the collection of

necessary regulatory, surveillance and

other information from foreign

jurisdictions. In evaluating the current

proposal, the Commission believes that

requiring comprehensive surveillance

agreements to be in place between the

CBOE and the primary markets for

foreign securities that represent 50% or

more of the weight of the underlying

index or portfolio upon which Fund

Shares are based, as well as the other

conditions discussed above, provides an

adequate mechanism for the exchange of

surveillance sharing information

necessary to detect and deter possible

market manipulations. Although the

Commission recognizes that up to 50%

of the portfolio’s value may not be

covered by comprehensive surveillance

agreements, the other requirement will

ensure that a significant percentage of

the portfolio is not made up of securities

from uncovered countries.

Further, as to the domestically-traded

Fund Shares themselves and the

domestic stocks in an underlying index

or portfolio upon which Fund Shares

are based, the Intermarket Surveillance

Group (‘‘ISG’’) 25 Agreement will be

applicable to the trading of options on

Fund Shares.

Finally, the Commission believes that

requiring minimum margin of 100% of

the current market value of the option

plus 15% of the market value of the

underlying security value (‘‘broad-based

margin’’) for options on Fund Shares is

appropriate. The Commission notes that

this margin requirement is comparable

to margin requirements that currently

apply to broad-based index options, and

that the CBOE’s proposal is limited to

trading options on Fund Shares

comprising or based on a broad-based

index or portfolio. Accordingly, the

Commission believes that broad-based

margin is appropriate for options on

Fund Shares.

The Commission finds good cause for

approving Amendment Nos. 2, and 3 to

the proposed rule change prior to the

thirtieth day after the date of

publication of notice thereof in the

Federal Register. Amendment No. 2

strengthens the proposal by: (1)

providing that either the Fund Shares

underlying the options satisfy the listing

standards for options on underlying

equity securities or the Fund has agreed

to issue Fund Shares even though some

or all of the securities needed to be

deposited have not been received, thus

ensuring a minimum level of liquidity;

and (2) adopting standardized equity

option position and exercise limits.

Amendment No. 2 also removed certain

continued maintenance standards, but

these requirements were added back to

CBOE’s rules with Amendment No. 3.

The Commission also believes that

Amendment No. 3, concerning

surveillance requirements, strengthens

the CBOE’s proposal. Amendment No. 3

provides a clear, objective standard for

determining the comprehensive

surveillance requirements for trading

options on Fund Shares where the

underlying index or portfolio contains

non-U.S. stocks. In addition,

Amendment No. 3 strengthens the

Exchange’s proposal by including

contained listing standards for options

on Fund Shares.

Finally, the Commission notes that no

comments were received on the original

CBOE proposal, which was subject to

the full 21-day comment period.

Accordingly, the Commission believes

that there is good cause, consistent with

Section 6(b)(5) of the Act, to approve

Amendment Nos. 2 and 3 to the

proposed rule change on an accelerated

basis.

Amendment No. 4 merely corrects an

erroneous cross-reference in

Interpretation and Policy .08 to Rule

5.4.26

Interested persons are invited to

submit written data, views and

arguments concerning Amendment Nos.

2 and 3 to the proposed rule change,

including whether such Amendments

are consistent with the Act. Persons

making written submissions should file

six copies thereof with the Secretary,

Securities and Exchange Commission,

450 Fifth Street, NE., Washington, DC

20549. Copies of the submission, all

subsequent amendments, all written

statements with respect to the proposed

rule change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Section, 450 Fifth Street, NW.,

Washington, DC. Copies of such filing

will also be available for inspection and

copying at the principal office of the

CBOE. All submissions should refer to

File No. SR–CBOE–97–03 and should be

submitted by July 31, 1998.

For the foregoing reasons, the

Commission finds that the CBOE’s

proposal to list and trade options on

Fund Shares is consistent with the

requirements of the Act and the rules

and regulations thereunder.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,27 that the

proposed rule change (File No. SR–

CBOE–97–03), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.28

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18413 Filed 7–9–98; 8:45 am]

BILLING CODE 8010–01–M